essay-accunting for leases.docxVIP

PAGE PAGE 1 Abstract The current rule-based lease accounting model has long been criticized for creating scope for off-balance-sheet financing, which impairs the faithfulness of financial statements. So IASB proposes to bring operating leases on balance sheet to enhance accountability and transparency of the financial report and provide more complete information about the company. This essay believes that the proposal will bring accountability and transparency in terms of revealing true financial position, improving reporting quality, providing reliable financial indicators. It also has shortcomings such as over-complexity and confusion in classification. However, the benefits of this proposal outweigh the negative aspects regarding accountability and transparency. As one of the most pervasive form of off-balance-sheet reporting, leasing has been a long-standing issue for financial reporting. In order to improve accountability and transparency, the IASB proposes to bring operating leases on balance sheet. In financial reporting, accountability refers to the obligation of an individual or organization to account for its activities, and to disclose the results in a transparent manner. Transparency refers to the extent to which investors have ready access to any required financial information about a company. It is also known as full disclosure. Accountability and transparency are critical features of financial reports for users and stakeholders to make decision (Hugh John 2014). The new lease accounting proposal will bring accountability and transparency in terms of revealing true financial position, improving reporting quality, providing reliable financial indicators. Firstly, this reform will bring hidden off-balance-sheet financing onto the financial statement, thus revealing the company’s true financial position. The current rule-based bright-line lease accounting model is so simple that it creates scope of accounting manipulation in financial reporting (Su